AM 85%

In this blogpost, Pranav Rudresh, Student of Lloyd Law College, Greater Noida and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about what are group companies, salient features of group companies and the accounting system of group companies 

AM 85%


Group companies or popularly known as the corporate groups is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. The concept of a group is frequently used in tax lawaccounting and (less frequently) company law to attribute the rights and duties of one member of the group to another or the whole. The companies in corporations can be engaged in entirely different businesses, this kind of group  is called a conglomerate. The forming of corporate groups usually involves consolidation via mergers, although the group concept focuses on the instances in which the merged and acquired corporate entities remain in existence rather than the instances in which they are dissolved by the parent. The group may be owned by a holding company which may have no actual operations.

A corporate group or group company is composed of many companies. The general rule is that a company is a separate legal entity from its shareholders that is the shareholder’s liability for the subsidiary’s debts is limited to the value of the shares, and the shareholders cannot be required to perform the company’s obligations.

However, some of the jurisdictions are an exception to this rule. For example see Germany; it has created affiliated enterprise law which provides situations in which one company is liable for the debts of another company.

Salient features of Group Companies 

  • It consists of more than one company.
  • The forming of corporate groups usually involvesconsolidation via
  • It’s not necessary that the companies work for the same purpose.
  • The general rule is that a company is a separate legal entity from its shareholders that is the shareholder’s liability for the subsidiary’s debts is limited to the value of the shares.

Accounting of Group Companies

All group companies are required to maintain proper books of account of affairs. The important things required to be entered while keeping the accounts records are :

  • All sums of money received and expended by the company, and matters in respect of which receiving and expenditure took place.
  • All sales and purchases f goods by the company.
  • The assets and liabilities of the companies.

The books of accounting of the group companies must contain :

  • It must reflect the true and clear statements of the state of affairs of the company or the group of companies, and also explain the transactions.
  • The books must be kept on the accurate basis and according to the double entry system of accounting.

The following person is responsible for keeping the records and timely maintenance of it :

  • The group of managing directors or the managers, in the general case of group companies there is a board of directors to handle such matters.
  • If the companies don’t have managing directors or the managers, then it’s the duty of the directors.
  • Every officer and other employee who has been authorised and to whom responsibility to maintain the books have been given by the board of directors.

The legal requirements applicable to group companies for accounting

The preparations of balance sheets and profit/loss accounts:

Part 1 to schedule VI of the companies act, 1956 gives a format in which the balance sheet has to be prepared. The group company has to prepare its balance sheet and profit and loss account from the books of account that has to be maintained by it. Every balance sheet of every group company must give a true and fair view of the state of affairs of the company at the end of a financial year. If the responsible fails to take all reasonable steps with the requirement of law relating to the form and contents of the balance sheets, he is liable to imprisonment up to six months or fine or both.

The main heads in this form are arranged as follows:

  • Share capital (fixed assets)
  • Reserves and surplus (investments)
  • Loans/ miscellaneous expenditures
  • Current liabilities
  • Profit and loss

Financial statements of business are useful for making decisions by Investors as well as decision makers in business. Inaccurate, no standardized, false or misleading accounting impacts managerial decision making and also prevents investors and other stakeholders from relying on financial statements, which can make raising investment, or exiting from a business (by selling one’s stake) more difficult.

To summarise, legal provisions may govern the following:

  1. Maintenance of accounts and preparation of financial statements such as profit and loss account, balance sheet, etc., any disclosures in financial statements.
  2. Filing of financial statements and reports before various authorities.

Accounting according to Indian Law (The Companies Act)

India follows two sets of accounting standards which are applicable to different categories of companies as per the applicable law

  1. Accounting standards under Companies Accounting Standards Rules, 2006: Companies which are not required to mandatorily follow Indian Accounting standard or those who have not adopted the Ind As standards voluntarily are required to follow the accounting standards laid down under Companies (Accounting Standards) Rules, 2006. The Institute of Chartered Accountants of India (ICAI), which is the body that governs Chartered Accountants, has issued thirty-five Accounting Standards under Companies (Accounting Standards) Rules, 2006, which contain the guidelines for recording or accounting treatment of different types of transactions.
  2. Indian Accounting Standards : Under the Companies Act, 2013, new accounting standards are known as Indian Accounting Standards will be applicable on different categories of companies in a staggered manner. The new accounting standards are similar to the International Financial Reporting Standards, making the new accounting system at par with the global norms.

As per Section 129 of the Companies Act, 2013 every profit and loss account and balance-sheet of a company must comply with these accounting standards, and any deviations from them must be specifically disclosed, along with reasons for the deviation and the financial effect of such a deviation. A list of accounting standards is attached in the Annexure A to this note.

The Companies Act, 2013 also specifies the format of the balance sheet and profit and loss account. The balance sheet must be prepared as per Schedule III (Part I) and the profit and loss account as per Schedule II (Part II) respectively (the formats are provided in Annexure B and C of this note).

It is to be noted that financial statements, auditor’s report and Board’s report of companies whose financial years commenced before 1 April 2014, need to file the report according to the rules and provisions of the Companies Act, 1956.

Under the Companies (Auditor’s Report) Order, 2003, under the old Companies Act, certain categories of companies which meet a prescribed threshold, were required to mention 21 matters in the auditor’s report till the financial year 2013-14. Under the new Companies Act, the auditors are required to state on only 13 different matters and will be applicable from the financial year 2014-15.

However, in the absence of a expressed repeal provision there is no clarity whether the existing rules under the Companies (Auditor’s Report) Order, 2015 will be applicable to the companies meeting the thresholds under the 2015 Order. The Companies (Auditor’s Report) Order, 2003 (see the list of exemptions below to find out which companies the order does not apply to) specifies a list of 21 items on which the auditor of a company must make his observations while preparing his report. Some of the items are listed below, to give an indication:

  • whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;
  • If a substantial part of fixed assets have been disposed of off during the year, whether it has affected the going concern;
  • whether physical verification of inventory has been conducted at reasonable intervals by the management;
  • If there is an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and
  • Whether there is a continuing failure to correct major weaknesses in internal control,


Hence, the concept of a group is frequently used in tax lawaccounting and (less frequently) company law to attribute the rights and duties of one member of the group to another or the whole.

This gives us a fair idea as to what and how group companies are accountable, and what are the legal requirements pertaining to accounting to group companies.

Did you find this blog post helpful? Subscribe so that you never miss another post! Just complete this form…